PeopleSoft shareholders fight plan

Refund guarantee would never work, lawsuit says

MikeTarsala

SAN FRANCISCO (CBS.MW) -- PeopleSoft's latest move to stop a $7.3 billion hostile takeover by Oracle is a "nonredeemable poison pill" that should not be allowed, shareholders said in a lawsuit.

In a move that could bolster Oracle's quest for one of its major software rivals, a group of PeopleSoft shareholders asked a judge to block a plan that guarantees refunds to customers that buy PeopleSoft products if they lose technical support after a takeover.

PeopleSoft
PSFT, +0.00%
said the plan would ensure continued support for customers if the Pleasanton, Calif.-based company is acquired.

"The suit is without merit," said Steve Swasey, PeopleSoft spokesman. "We stand by the customer assurance program. Anything that gives customers more security about their software purchases is good for the company, and ultimately good for shareholders."

No matter how much assurance the refund may give PeopleSoft customers, the program effectively blocks the company's board from accepting a better bid from Oracle or another buyer, shareholders said in their suit.

Oracle
ORCL, +0.15%
could end up having to pay to PeopleSoft customers under the refund offer, if its hostile bid succeeds, effectively increasing the acquisition cost above its $7.3 billion offer price. The potential cost of the refund program more than doubled in the third quarter to about $800 million, PeopleSoft executives said last month.

The shareholder lawsuit came to pass after PeopleSoft disclosed last week that it revised the refund program. The new program would refund between two and five times a customer's software license fee if PeopleSoft is acquired within two years and if the acquirer reduces product support within four years.

A previous program promised fee refunds if PeopleSoft is acquired within a year, and if the acquiring company reduces support within two years.

Oracle executives have repeatedly blasted PeopleSoft's refund program for months as an "entrenchment" tactic.

"PeopleSoft's latest action is management entrenchment at its worst," said Oracle spokesman Jim Finn on Friday. "These modifications to PeopleSoft's so-called Customer Assurance Program are not about protecting customers. Instead, they reflect PeopleSoft's blatant disregard for shareholder value and choice, preventing shareholders from exercising their right to determine board membership."

Finn says the so-called assurance program assures one thing -- that PeopleSoft CEO Craig Conway will stay around to collect a pay package that's valued at more than $100 million.

If it were to succeed, Oracle's tender offer, announced in June, would be the largest hostile takeover in the technology industry and one of the largest deals ever among software companies.

Redwood Shores, Calif.-based Oracle faces several key hurdles before it could put its hostile bid in front of PeopleSoft shareholders for a vote.

For starters, the Justice Department is still looking at potential antitrust conflicts that might arise from Oracle-PeopleSoft combination. Justice's decision to block the deal or to let it go through with or without conditions could come as early as this month.

In addition to the ongoing Justice Department review, Oracle's bid is under review by regulators in Europe. And while they haven't announced any legal action, several U.S. states have banded together to share the cost of gathering information on the potential deal and the overall software market.

Also, Oracle must overcome PeopleSoft's "poison pill" initiative that would dilute the value of the company's shares to thwart a takeover.

Shares of PeopleSoft added 33 cents to trade at $22.41 in recent dealings, after hitting a 52-week high of $22.61 earlier in the session. Oracle rose 3 cents to $12.73.

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